Should I sell my condo at a loss to make a fresh start on a new place with my partner? (I am using a sockpuppet, because this question contains personal financial info that I don’t want linked to my primary --and identifiable -- account and I may need to answer follow-up questions.)

I own a condo – its worth about $255,000 (maybe a bit more, but not much) and I have about $27,000 in equity. I originally put down $20,000.

My partner and I would like to move in together and I am wondering if should sell my condo now and use the money to buy a new house together or rent my place out for a few years.

My partner can afford to buy a new place without my contribution to the down payment, so my renting it out is an option. If I rented my condo, in a few years I could sell it and then apply the (greater I hope) profit to the equity of our new place.

If I sell now, I won’t break even. The real estate fees on my sale will be about $13,000 (2.5% for each agent) give or take. That’s only $14,000 remaining.

But even with that, I think it still might make more sense to sell. This is where I need help to figure out the best course of action. Reason being: my mortgage and fees are about $1650 a month, but units like mine in my area only rent for about $1500.

So if I rent it, I’d be out of pocket each month. Not to mention I’d have to set aside money for repairs, eventual appliance replacement and the possibility that the unit will be vacant at some points. Everything I have read says this would be a very bad move.

Also, even if I keep it -- as it will not be my primary residence -- I will have to pay capital gains taxes (I am in Canada) once I do sell, which will also reduce any potential profit down the line. If I sell now, there will be no capital gains to pay.

My question: Does it just make sense to take the $14,000 I might get now and put that into a new place with my partner? It feels wrong in way, as I’ll be coming out with less than I went in.
But my gut says, I would be paying a mortgage on the new place we buy – and so I would continue to build up equity in the new place. I just have to take a bit of a hit in the short-term.

I always answer the question "Should i keep something and slowly lose a little bit of money to keep having it, or sell it now and lose more money but stem the tide" with the sell option just to stop the bleeding.

I just don't understand renting unless you're breaking even, with the only exception i can think of being that you plan on moving back in to the place at the end of a short-ish lease with the tenant and basically want it to be ready to go on the back burner. If you never plan on living there again it just feels moronic.

Your points about actually supporting the place to meet the requirements of it being a rental(appliances, etc) and empty months are a big deal. So yea, don't do your math with just the difference you'd be losing per month. Add in at least a month, if not two a year of you taking on the full mortgage payment.

I would say just be happy you played the game and got out with 14k. lots of people got boned and ended up in a short sale type situation, etc.posted by emptythought at 2:36 PM on March 31, 2014 [1 favorite]

You might want to consider looking into selling it yourself. Especially in condos in some cities in Canada, it's a quite common way to sell (using things like bytheowner/duproprio or proprio direct, which has a broker but not an agent and lower commissions).

I'd sell it, though -- if you aren't even covering your expenses and don't intend to move back, the risk in keeping it would be too high for me.posted by jeather at 2:38 PM on March 31, 2014

The down side to renting a condo is that your maintenance fees may go up and/or you may have an assessment that will really skuttle your budget. Ditto anything in the condo that may need fixing or replacing, the HVAC, hot water heater, an appliance, who knows.

Also, can you afford to carry it if your tenant stops paying rent, or if it sits empty?

I'd sell, hell, you're not even having to come out of pocket on the damn thing.

I'd sell now. As you've seen from real estate in the past ten years, there are no guarantees that in the future you would actually end up ahead of where you are now. This especially applies to very short term of a few years, and doubly so for a condo.

You don't want the uncertainty and stress of acting as landlord while actually losing money month to month. While attempting to start a new chapter in your life. Best case, by your own numbers, this would cost you $3600 for two years to rent it out. Your payment applied to principal likely wouldn't outweigh this number.posted by shinynewnick at 2:41 PM on March 31, 2014 [1 favorite]

Suggest you spend an hr or two with an accountant to work out the tax implications of each option. And you should talk to a few local letting agents about how marketable the property is. Only then can you make an informed decision.

I'm in negative equity in the uk on what used to be my primary residence. I've been letting the property for three years now, I always had a new tenant before the old tenant moved out. I break even from a taxable income perspective but not from a cash flow perspective because my interest payments and other property expenses are more than covered by my rental income but not by much. The repayment of the capital I borrowed is not covered in full. For me it makes no sense to realise a significant loss and sell, which would result in a significant cash outflow because I'd have to make up the difference. Now admittedly the monthly shortfall and any unplanned repair costs to date are quite small compared to my monthly income so I don't have to deprive myself to do this. I could also meet the full mortgage payments for a while if required, which give peace of mind. YMMVposted by koahiatamadl at 2:58 PM on March 31, 2014

Let's say you have a choice of two deals tomorrow:

Deal A: I pay you $14,000 in cash, tax free plus a tax deduction of $6,000. You can spend this now or invest it and have even more guaranteed in five years.

Deal B: You give me $228,000 which you borrow from the bank. You pay me at least $150/month, but sometimes $1650, sometime more. In five years, I might give you $20k. Or $14K. Or $30k. Or you might get just enough to pay back your loan.posted by metahawk at 3:01 PM on March 31, 2014 [3 favorites]

I assume continuing to live in the condo with your partner is not an option?

It sounds like you should sell. Unless you can find a way to raise the rent so you break even. But still.posted by redlines at 3:11 PM on March 31, 2014

Don't underestimate the pain in the ass that is renting out your place. You're on the hook for dealing with repairs, the tenants might bring in pets, you have to get it ready for the market when tenants are already there. Unless you're in a location where you can rent out your condo and break even or make money, and you can EASILY rent it for that amount, it's not worth it.

You haven't lost money. You've lived there. It's served you well.

Make a clean break, sell it now, look forward to your next chapter in life.

Save some of it as an emergency fund if you need to leave your partner and find a new place in a hurry.posted by barnone at 3:48 PM on March 31, 2014 [2 favorites]

So if I rent it, I’d be out of pocket each month.

Annnnnd let's stop right there.

I wound up stuck with my first house, so I've been renting it. You need to make a slight profit in order to have a reserve fund for unexpected expenses ("oh, look, it's a $600 plumbing bill") and to tide you over between renters in case you lose one (or have to actively lose one). There are also tax-related consequences if your rental doesn't turn a profit within X amount of time (three years, I think, but you'd need to consult an accountant). It sounds like you just need to sell it.posted by thomas j wise at 3:58 PM on March 31, 2014 [2 favorites]

Out of curiosity: why not live in the condo with your new partner? You allude to getting a new place for a fresh start; why not get a fresh start by doing the fiscally responsible long-term-looking choice of moving in together, spending a little money to freshen it up, with the goal of selling it in (say) five years when you won't lose money? If you and your partner are in it for the long haul, five years is a drop in the bucket, and if you're not in it for the long haul you shouldn't be selling your condo to move in with them anyway.

Note that I base this on your plan to get a new place for a fresh start. If your partner has no intention of keeping their current place, this works out nicely. If you feel like you can't live in a small space with your partner (and so your condo is too small), perhaps you should think about that further before you make real estate changes for this relationship.posted by davejay at 4:25 PM on March 31, 2014 [1 favorite]

When people work out the cost around rentals, they consider a few things.

In Canada, you would be writing off your mortgage interest, strata fees, taxes, maintenance and etc. I'm not sure how much of your mortgage is interest. $300? And then say $500/mo for the rest. So, while you might be putting out $1700, you are not paying tax on $800 of that - maybe $240 net. And maybe you have a bit of a loss. So this is how people can rent their place out for less than it's costing them. The tax advantage.

It doesn't sound like you have an emergency savings. If you are going to rent out a place, you should have about 9 months of expenses in the bank - that's to cover your own expenses and then the expenses of the condo, if you end up out of work and with no tenant. (This assumes you qualify for EI. If you don't qualify for EI, save more.)

If you and your partner are thinking of buying a new place, you should also have enough for a downpayment, maintenance, unforeseen expenses, new furniture and the like. I didn't get the feeling that you have this, but perhaps you didn't share that.

Given all these things, I think you and your partner should consider living in your condo for 1-2 years and setting aside money like mad. Between you, set aside the amount you were each paying extra before (e.g. partner's rent). In a year, you should have more in savings, more equity paid down, and a sense of the market. It sounds like you may still find it tight to be renting out your condo. But at least you'd have more in savings and have paid down more equity. So I'd vote for living in the condo for 1-2 years (if it isn't under <500 sq ft or something) and then look at this again.posted by Chaussette and the Pussy Cats at 5:04 PM on March 31, 2014

I have about $27,000 in equity. I originally put down $20,000 ...

If I sell now, I won’t break even. The real estate fees on my sale will be about $13,000 (2.5% for each agent) give or take. That’s only $14,000 remaining.

You lost that money when the market took a nosedive. It's gone. Selling now doesn't lose you any more, and waiting won't make it come back. Selling now merely forces you to acknowledge and accept what is already true, i.e. that that money is gone. Better to take your lumps and move on. Invest your $14K somewhere else.posted by jon1270 at 7:58 PM on March 31, 2014

To answer a few questions:
My condo is a little less than 500 sq ft. Very tiny.
My partner also owns a home and has quite a bit more equity than I do. It is also too small for two. Hence, the new place idea.
I have good retirement savings and make a good salary, but little easily liquidated cash. I could come up with money in an emergency, but not without tax implications.
The market in my city did not take a nosedrive at all. In Canada, we did not have a subprime mortgage crisis. Real Estate is still very strong here -- at least in my city. But, of course, that's no gurantee of anything.

According to Wikipedia, you deduct for negative gearing in Canada. This could change the game slightly. You may also be able to claim for the cost of upgrades. I would talk to a tax accountant about your options.

This is also a bit of a relationship question. It might be preferable to own something of your own that is completely separate to him. It might be preferable to be more even coming into the buying of your shared place.posted by kjs4 at 10:34 PM on March 31, 2014

On the 'lost $7000' though, it's not really, as I imagine you would have probably spent most of that money on rent.posted by kjs4 at 11:14 PM on March 31, 2014

The market in my city did not take a nosedrive at all. In Canada, we did not have a subprime mortgage crisis. Real Estate is still very strong here -- at least in my city.

Fair enough, but still, the idea that maybe you should keep the place until you "break even" doesn't make any sense. If you don't plan to live there then it would only be a good investment if you had some sort of insider knowledge that it was going to appreciate sharply sometime soon, or you were especially well suited to being a landlord. Absent such advantages there are other investments that would be safer and easier to own.posted by jon1270 at 6:08 AM on April 5, 2014

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